Can we talk about budgets?
Source: St. Louis Federal Reserve
It’s October. The time of year when the leaves fall, the woodbin gets filled, and budgets are proposed for next year. Budget season is about as attractive as a trip to the dentist for most people. But budgets are necessary. If you don’t know how much you can spend, you’ll usually spend too much.
Only, not always. The Federal Government operated without a budget for years, because Congress and the White House couldn’t agree on much. But even though they’re on opposite sides of many issues—or maybe because they are—the deficit has gone down dramatically. According to the Congressional Budget Office, 2014’s deficit came in at 2.8% of the economy—less than the average of the last 30 years.
In business, budgets are a baseline, and if things go well you may get a new item or two, maybe a new employee. But government budgets don’t work that way. Division heads use the new budget to propose a wish-list or grand vision or blue-sky view of what they want to have. The budget office then pulls these grand plans back to earth, and the chief brags about how much was “cut” from the budget, even though the final product is often more expensive than the year before.
This is nuts. It’s not the way responsible people work. So don’t be too upset about divided government. When lawmakers disagree, the result can be lower spending.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!